We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Oaktree Specialty Lending Corporation (NASDAQ:OCSL) and determine whether hedge funds skillfully traded this stock.
Oaktree Specialty Lending Corporation (NASDAQ:OCSL) was in 13 hedge funds’ portfolios at the end of March. OCSL investors should be aware of a decrease in activity from the world’s largest hedge funds in recent months. There were 18 hedge funds in our database with OCSL holdings at the end of the previous quarter. Our calculations also showed that OCSL isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 most profitable companies in the world to identify emerging companies that are likely to deliver 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the new hedge fund action encompassing Oaktree Specialty Lending Corporation (NASDAQ:OCSL).
What have hedge funds been doing with Oaktree Specialty Lending (NASDAQ:OCSL)?
At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -28% from the previous quarter. By comparison, 19 hedge funds held shares or bullish call options in OCSL a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
More specifically, Springhouse Capital Management was the largest shareholder of Oaktree Specialty Lending Corporation (NASDAQ:OCSL), with a stake worth $12.6 million reported as of the end of September. Trailing Springhouse Capital Management was Millennium Management, which amassed a stake valued at $7.3 million. Arrowstreet Capital, Two Sigma Advisors, and Solas Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Springhouse Capital Management allocated the biggest weight to Oaktree Specialty Lending Corporation (NASDAQ:OCSL), around 15.57% of its 13F portfolio. Almitas Capital is also relatively very bullish on the stock, setting aside 3.72 percent of its 13F equity portfolio to OCSL.
Since Oaktree Specialty Lending Corporation (NASDAQ:OCSL) has witnessed a decline in interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of funds that decided to sell off their full holdings in the first quarter. At the top of the heap, Jeffrey Hinkle’s Shoals Capital Management said goodbye to the biggest position of the “upper crust” of funds tracked by Insider Monkey, totaling an estimated $8.2 million in stock. Ken Griffin’s fund, Citadel Investment Group, also sold off its stock, about $1.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 5 funds in the first quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Oaktree Specialty Lending Corporation (NASDAQ:OCSL) but similarly valued. We will take a look at Grid Dynamics Holdings, Inc. (NASDAQ:GDYN), Stoneridge, Inc. (NYSE:SRI), BlackRock Resources & Commodities Strategy Trust (NYSE:BCX), and Echo Global Logistics, Inc. (NASDAQ:ECHO). This group of stocks’ market caps are closest to OCSL’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $31 million. That figure was $42 million in OCSL’s case. Stoneridge, Inc. (NYSE:SRI) is the most popular stock in this table. On the other hand BlackRock Resources & Commodities Strategy Trust (NYSE:BCX) is the least popular one with only 6 bullish hedge fund positions. Oaktree Specialty Lending Corporation (NASDAQ:OCSL) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but still beat the market by 16.8 percentage points. Hedge funds were also right about betting on OCSL as the stock returned 41% in Q2 (through June 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.